He was certainly stumpfed by Warren’s mean-spirited, socialist, anti-American barrage of questions attacking the economic foundations of this great nation…
Come on, people, so the oversight exec got a little over-energetic in pursuit of her goals. She needs that extra 45 mil to get on with her life. (Can you imagine how hard things would be trying to get by with a mere 70 mil?)
It wasn’t “fraud.” Mr. Stumpf said so. And the bank has policies in place to address the problem. Mr. Stumpf said so. Let the free market system work, for pete’s sake…
If a bank loses a criminal case they would lose their banking license. Which is not quite the same as losing a corporate charter, but it would mean losing access to the Federal Reserve system, the FDIC, etc.–they would not be able to be a bank in the US. Also, yes, it would punish the shareholders, but surely the shareholders must realize the risk of holding shares in a potentially criminal enterprise; they should not be shielded from that risk.
Im not suggesting prosecuting the bank. Im suggesting prosecuting the management. They are the bad actors. Not the shareholders or staff. One might argue that the shareholders should have selected managers better. But thats difficult to do in the modern world. We dont really get to observe what management is doing on our behalf. If you think about it among the losers would be passive investors in index products like S&P500 funds etc. If we have a shot at sending Stumpf and whatshername to jail then we should take it. Setting the precedent is likely to be a better way of disciplining executives than fining the bejesus out of shareholders. And in this case it looks like once they do some discovery they will have every chance of locking up at least two of the architects of this criminal scheme.
You know these CEOs are all about taking credit for anything positive, even when it is clear that share prices are simply tracking the general price increases in the S+P. That is justification for huge bonuses. But when any malfeasance is discovered they’re all “Hoocodanode?” Somebody pointed out that the compliance officers reported to the regional heads (whose bonuses are based of sales), rather than the central headquarters, and that is a corporate structure almost guaranteed to generate this sort of fraud.
Exactly this. Protecting shareholders from loss creates a classic moral hazard, they profit from crime, but don’t share the risk. If corporations are at risk of “capital punishment” their management will be scrupulous about being above suspicion of ANYTHING, lest their share price suffer as shareholders walk away. But as long as owners and upper management are held harmless from even gigantic fraud, the game will continue.
So is Elizabeth Warren just functioning for us in a vicarious way, making us feel a little better that at least SOMEONE is yelling at money-sucking leeches like this guy? Or are we instead finally going to see some suits go to prison? Cuz I’m getting tired of the first, really ready for the second.
The customers are pretty much out of luck. Back in the’90s bankruptcy ''reform"Congress made it impossible for individuals to escape from losses due to identity theft.
Which is basically what WF did to them. Same as the people who lost their homes and savings to foreclosure fraud back in 2009 and 2010. The States made a “settlement” that put some money in their general funds but the victims mostly never saw a dime.
“Exactly this. Protecting shareholders from loss creates a classic moral hazard, they profit from crime, but don’t share the risk. If corporations are at risk of “capital punishment” their management will be scrupulous about being above suspicion of ANYTHING, lest their share price suffer as shareholders walk away. But as long as owners and upper management are held harmless from even gigantic fraud, the game will continue.”
Two counter arguments.
Shareholders do not have control in practice, so there is no moral hazard. These decisions are not taken by shareholders and in many cases are not observable by shareholders. Shareholders were given no opportunity to choose to engage in illegal behavior or to reject it. In addition, in the modern world, where shares are generally held by large asset managers, there is a further separation between the decision maker and the shareholder.
Just because the shareholders are an ultimate beneficiary of managements legitimate actions does not mean they are the only beneficiary or even the most significant beneficiary. Management did not ask permission to engage in this activity and did not give full information to shareholders. However Tolstedt did collect 125mn dollars. You seem to suggest that Stumpf and Tolstedt should be given a free pass and the shareholders punished.
No, there is, because the risk of criminal prosecution is not priced in by the market. If market participants thought there was such a risk, even if they themselves were not liable for it, they would price the shares according to their perception of the risk. In this case, Stumpf was able to use the fraud to pump up the stock price with very little apparent risk. Stumpf was rewarded by the values of his own shares going up, and gave no thought to the possibilities that either the shareholders or the government would extract a price for it.
Arguably, this is significantly worse than the foreclosure fraud problems. These customers here did NOTHING to end up with dings to their credit history. In the vast majority of the foreclosure fraud cases the borrowers HAD pledged the property as security for a loan that they were unable to pay off as agreed. (of course in many cases there should have been no reasonable expectation that they could have paid off the loan) It’s just that the banks were in such a hurry to close the loans that they couldn’t even be bothered to save and properly file the paperwork to prove this.
“No, there is, because the risk of criminal prosecution is not priced in by the market. If market participants thought there was such a risk, even if they themselves were not liable for it, they would price the shares according to their perception of the risk. In this case, Stumpf was able to use the fraud to pump up the stock price with very little apparent risk. Stumpf was rewarded by the values of his own shares going up, and gave no thought to the possibilities that either the shareholders or the government would extract a price for it.”
So I think you have a point but wouldn’t this is using an axe instead of scalpel. The shareholders were not asked whether they condone the illegality. They just failed to monitor the behaviour of management. The risk you introduce would apply to all banks so all bank shares would decline. Bank equity is a major determinant of liquidity ratios so lending could decline.
And it would not address the incentives of management as directly. Plus management would not pay for the crime, only shareholders would pay. Surely that isn’t justice.
The writing was on the wall. After 2008’s Wells Fargo debacle, I decided to stop doing business with them and move my giant vault of bouncing coins into a Credit Union. Plus, the service that I had already received from Wells Fargo was indifferent at best considering how much raw cash was just sitting there.
So I marched in and told the clerk that I wished to withdraw everything and switch to another bank. Her eyes lit up. “Just a moment, let me get someone to help you! Right this way Mr. Scrooge! Would you like a coffee with that Mr. Scrooge? Here’s an important fellow behind a desk just sitting around waiting to serve you!”
Once the important fellow behind the desk understood the business at hand, his eyes lit up. “We can certainly help you with that, Mr. Scrooge!”
I’m surprised they didn’t give me a free toaster or a handgun.
Some of those loans should never have been issued, true. Then again, a lot of them should never have been offered, too - the borrowers qualified for better ones. Then the ones where the borrowers qualified for refis at lower rates but the lenders blocked that to force foreclosure.
Then were the ones where the lender foreclosed on a property that had no loan on it anyway but someone mistyped the address and robosigned it.